28 Sept 2022

Making Cents with Liam Croke: Four tips to smooth out your mortgage application

Making Cents with Liam Croke: Four tips to smooth out your mortgage application

Follow Liam's advice to expedite that mortgage application

Getting your finances in shape for a mortgage application is important so I’m going to look at what you can do to increase your chances of success.

1. Permanency of employment

Banks want to lend to people who are in full time, permanent employment who have completed their probationary period.

They look really favourably on applicants who have been with their current employer for at least two years. It’s not essential or a must, but a good employer and a stable work history, does give them comfort. So, if you are thinking of switching jobs and buying a property, then maybe think again until you have got your mortgage in place, and a property bought. If you move jobs, even to one where your income is higher, you’ll probably still have to go through a probationary period which could last six or 12 months which could delay your house purchase.

If you’re working and in contract employment, without question this makes it more difficult to secure a mortgage. A lender will always think the worst – what if their contract is not renewed, how will, they be able to pay their mortgage? So, they tend to be more cautious with people who are in contract positions but that’s not to say they won’t lend to them either.

I spoke with one lender this week and enquired as to their policy on mortgage applications for people in contract employment. Their response was that applications will be assessed on a case by case basis, where the stability of employment of the applicant and their future job prospects has been established. Ideally, they want to see applicants who are on contract working in growth sectors, a history of contract renewal, professional qualifications and good prospects of alternative employment at a similar salary level, in the same line of work.

2. Sufficient Savings

Banks like to see a gradual build-up of savings over time.

What gives them great comfort is, if the amount you were saving each month was the same as your future mortgage repayments. It won’t be a shock to your system when your mortgage draws down, because you will have been saving/paying rent, for the equivalent of what your new mortgage is costing you. This - demonstrating an ability to repay through savings and or the amount you are paying in rent each month- is vital.

So, if you are looking at properties where the mortgage costs c. €1,500 each month, then prove you will be able to repay this amount by saving that amount each month or prove via bank statements that you are paying that amount each month in rent.

3. Maintain good accounts

Banks will forensically go through your current accounts, line by line.

If you are constantly in overdraft each month, or you have nothing left over, or you have referral fees being applied, they are big red flags and your chances of securing a mortgage, regardless of how much income or savings you have, are greatly reduced.

A bank will ask for at least six months’ current account statements, so present them with statements where there is a consistent credit balance at all times.

If you have money in a credit union for example, and you are going to use some towards your deposit, it might be worth diverting some into your current account, so when you’re presenting statements, they show a healthy surplus of say €3,000 every month. And that €3,000 is the money you transferred from your credit union account. You may still have nothing left over at the end of the month, but that buffer of €3,000 you lodged looks as if you have.

4. Get your documents together and in order

Without doubt, there is a lot of paperwork to gather and a lot of forms to fill out, but to help create a good impression, come prepared and don’t make an application without having everything you’ve been asked for.

If you make an application and you provide two pay slips, when you were asked for three or giving five months of bank statements instead of six, is incredibly annoying to a lender. So, whatever they ask you for, give them.

Don’t annoy an underwriter by making them work to find bank statements or having them put statement pages in the correct date order etc - make it easy for them. Give them a folder with all the forms requested in the correct order and consider dividing it into different sections i.e. have one divider marked income and in it have your salary certificate, your P60s and payslips, and then have another divider marked bank statements and so on.

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